Before we go ahead with the topic, it will be necessary to understand the exchange rate system that prevails among different currencies.they are of two types namely ; A fixed exchange rate A floating exchange rate or fluctuating exchange rate A fixed exchange rate : (also called as pegged exchange rate,) is a type of exchange rate regime where a currency's value is fixed against either the value of another single currency, or to a basket of other currencies, or to another measure of value, such as gold. In a fixed exchange-rate system, a country’s central bank typically uses an open market mechanism and is committed at all times to buy and/or sell its currency at a fixed price in order to maintain its pegged ratio and, hence, the stable value of its currency in relation to the reference to which it is pegged. Depreciation and devaluation are sometimes incorrectly used interchangeably, but they always refer to values...
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